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26 October 2023

Market Commentary – September 2023

September has traditionally been a tough time in markets and this year did not disappoint. The euphoria of early 2023 seemed far away as liquidity conditions were crushed by a bond market sell off in the US. Global Equities fell 3.8% unhedged or 4.7% hedged, and domestic 4%. Fixed income fell 1.3% domestic or 2.7% hedged international. Cash was the only asset to break the mould.

The reasons for the bond market sell off are quite different in our view from 2022: short term inflation is less of a concern now, and short-term rates have stabilised. At the long end of the rates curve a long-held inversion retraced (commonly known to practitioners as a “bear steepener”). Increasing long term rates deteriorates liquidity conditions, particularly in the US, which prices mortgages off the 30-year yield.

Looking ahead, we remain cautious on equity markets given the weakening macro backdrop, however, patiently waiting for opportunities to add risk once the market environment improves.

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